Monday, December 1, 2008

Full house buy signal turns red

The DJIA is looking to open down a couple hundred points.This fellow is worth listening to. We linked to a couple of his prior calls*, which turned out to be timely and accurate. (see below)From FT Alphaville:

There was much excitement a month ago when Morgan Stanley strategist Teun Draaisma, announced a “full house” buy signal from the four key indicators he follows (Valuation, Capitulation, Risk and Fundamentals, if you are interested).

Apparently, this was the strongest signal to buy equities in six years and the indicators had a near perfect track record.

But after last week’s record breaking rally for global equity markets, Draaisma has turned bearish, downgrading equities to “neutral” from “overweight”.

Patience is the preferred virtue, cash the preferred asset in bear markets. Equities have already reached fair value, in our view, but big valuation overshoots are typically followed by big valuation undershoots, and the 2000 valuation overshoot was the biggest ever.

Draaisma says the case for a bear market rally is still there, but with markets swinging around violently and fundamentals still poor, the game has become much more dangerous....MORE

And from MarketBeat:

Don’t Get Too Excited About This Rally

Broad indexes have risen 20% from their lows six trading sessions ago; in this market, that means they are still in the danger zone, and investors shouldn’t celebrate a new bull market yet.

The Standard & Poor’s 500 closed Friday at 896.24, up 19% from its closing low of 752.44 on Nov. 20. That would look like a definitive turnaround if it were not for the fact that the S&P 500 managed a similar rally between Oct. 27 and Nov. 4, when it rose 18%. When the stock market is enduring its most volatile year since the 1930s, 19% isn’t a big cushion above the lows.

Plus, in the last bear market, the S&P 500 had two rallies of roughly 20% in 2001 before ultimately finding its feet in October 2002. The Dow Jones Industrial Average is up 18% from its low on Nov. 20, though it remains down 34% for 2008....MORE